CIRA Principles & Practices 5

Question 1

An 'out-of-court restructuring' (distressed exchange) is generally preferred over a formal bankruptcy filing because it:

Accepted Answer

Is typically faster, less expensive, and avoids public stigma and operational disruption

Answer

Out-of-court restructurings avoid bankruptcy costs and publicity but require near-unanimous creditor consent, making them more practical when the creditor base is concentrated.

Question 2

In a restructuring context, 'net operating loss (NOL) carryforwards' are valuable because they:

Accepted Answer

Can offset future taxable income, reducing the reorganized debtor's tax burden

Answer

NOL carryforwards can shelter future taxable income, but § 382 of the Tax Code may limit their use if there is a significant ownership change upon emergence.

Question 3

Which document provides the court and creditors with detailed information about the debtor's history, business, and proposed plan of reorganization?

Accepted Answer

The Disclosure Statement

Answer

The Disclosure Statement must contain 'adequate information' to allow creditors to make an informed vote on the plan, covering the debtor's history, risk factors, and plan mechanics.

Question 4

A CIRA candidate should understand that 'executory contracts' in bankruptcy are contracts where:

Accepted Answer

Material obligations remain unperformed by both parties, giving the debtor the right to assume or reject them

Answer

Under the Countryman definition, an executory contract is one where both parties have sufficient unperformed obligations that failure to perform would be a material breach.

Question 5

In distressed M&A, a buyer purchasing assets through a § 363 sale receives them:

Accepted Answer

Free and clear of most liens, claims, and interests with court approval

Answer

A § 363 sale provides buyers with clean title by transferring assets free and clear of liens (which attach to proceeds), making it attractive to strategic and financial acquirers.

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA Principles & Practices 5